Mortgage rates continue to charter unfamiliar waters with seemingly new record lows on a weekly basis.
With the exception of a few blips on the radar over the past 6 months, mortgage rates have continued to stay at, or below, previous all-time record lows, and the stagnant economy is to blame.
Mortgage Rates On An Elevator Down
As one analyst put it recently, “Mortgage rates have been on a one-way elevator to the cellar.”
Mortgage rates have continued to slump in tandem with the U.S. economy. Freddie Mac attributed the rock-bottom rates to two recent economic reports: the anemic payroll growth of 69,000 jobs in May, which pushed the unemployment rate up to 8.2%, and the weaker-than-expected gross domestic product growth of a 1.9% annual rate in the first quarter.
During the first quarter, the MBA estimates that mortgage lenders originated $91 billion in purchase loans — a 14 percent decline from the year before. So far, lenders are on track to originate $97 billion in second quarter purchase loans, which would represent a 12 percent annual drop.
The low mortgage rates are happening as home prices hit new post-bubble lows, according to the S&P/Case-Shiller home price index of 20 major markets. Home prices have not been this low since mid-2002. Yet, tight underwriting standards and fears about the strength of the economic recovery have kept some would-be homebuyers on the fence.
Briefing lawmakers in Washington, D.C. recently, Federal Reserve Chairman Ben Bernanke said the depressed housing market has “been an important drag” on the economic recovery. Bernanke said the Federal Reserve is continuing a program announced last September to lengthen the average maturity of its securities holdings by purchasing $400 billion of longer-term Treasury securities and selling an equal amount of shorter-term Treasury securities.
There undoubtedly has never been a better time to buy a home, if your finances are in order and you can qualify for a mortgage with today’s almost unbelievably low mortgage rates. Talk to us about your options. You may find that you qualify, and you’ve been sitting on the sidelines in fear.
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Home Buyers Find Bidding Wars Again
Home buyers nationwide are being caught by surprise as the spring selling season swings into high gear. Bidding wars are back!
Many buyers are finding themselves competing for the same house. Unlike the bidding wars of the past, these recent bidding wars are the result of a shortage of inventory.
Sellers, meanwhile, are not seeing huge price increases or hefty profits, like some did during the boom years when prices were going through the roof. Competitive bidding in this current enviornment is being caused by tight inventories. More evidence that housing demand is starting to pick up again after a six-year slump.
According to a Wall Street Journal quarterly survey, the inventory of homes listed for sale declined sharply in all 28 markets they track. At the height of the housing crisis in 2008, there was an 11.1 months’ supply of home for sale. In March, there was a 6.3 months’ supply. Real estate agents normally consider a market to be balanced when there is a six month supply of homes for sale.
An index recently reported by the National Association of Realtors measuring the number of contracts signed to purchase previously owned homes rose in March to its highest level in nearly two years, up 12.8% from a year ago, and 4.1% from February.
Market inventory varies in different parts of the country, but the general consensus nationwide is, the number of houses for sale is edging down.
Inventories seem to be declinging for several reasons. Some sellers have taken their homes off the market to wait for prices to increase and market conditions to improve. Investors, meanwhile, have been outmaneuvering consumers for the best properties, often making cash offers that are quickly accepted by anxious sellers.
Improvements are obviously investments in your home, and most homeowners have a list of things they’d like to do to their home to make it their dream home. Things like: gutting the kitchen, reconfiguring the bathroom or repainting the entire outside of the home.
Some economists say inventory levels are artificially low because Fannie Mae, Freddie Mac, and the nation’s largest banks have been slow to list hundreds of thousands of foreclosed homes they own. Lenders slowed down the foreclosures after record-keeping abuses came to light 18 months ago.
If those same banks and lenders step up their efforts to unload their properties, inventories could quickly rise, putting pressure on prices again.
Even with bidding wars popping up again, pushing prices higher in some areas, many homes are still selling for prices much lower than they were a few years ago. Meanwhile, rents are rising at a time when mortgage levels have fallen to or near record lows. Many renters are finding rates so low they can now afford a house that was out of their price range just a year or two ago.
Housing markets face another danger. More than 11 million homeowners owe more than their home is worth, causing the trade-up market to completely stall. When homeowners can’t sell their home, let along come up with the down payment for their next home, move up buying tends to dry up.
Mortgage lending standards remain very tough. Many “deals” fall apart because homes won’t appraise for the price buyers have agreed to pay, and sellers are not willing to come down even more than they already have.
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Mortgage Rates Remain Near Record Lows
Mortgage rates have dipped to near record lows again, keeping home buying and refinancing very affordable.
Last week, mortgage buyer Freddit Mac reported the rate on the 30-year fixed rate loan had dropped to 3.88%, down from 3.9% a week ago. The rate hit 3.87% back in February, the lowest long term mortgage rate in history.
The average on the 15-year fixed rate mortgage dipped to 3.12%, down from 3.13% the previous week. The national average hit an all-time low of 3.11% just two weeks ago. Average rates do not include extra fees, aka points, which most borrowers have to pay in order to get the lowest rates. One point equals 1 percent of the loan amount.
So far, record low mortgage rates have done very little to boost home sales. Analysts suspect that a record warm winter may have something to do with that, as many sales that would have normally taken place during the spring buying season, actually took place in January and February.
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Spring Cleaning For Your Finances
With Spring in full force most everywhere now, and tax season once again behind us, now is a good time to do some “spring cleaning for your finances” to help you eliminate some of the paper clutter, and get better organized.
Here are some tips on Spring Cleaning for Your Finances and your office record keeping…
We welcome your comments and suggestions below.
Even if you’re not thinking about applying for a loan or credit card in the near future, it’s always a good idea to look at your credit report and scores. You should check your personal credit report and score at least twice a year to make sure that all of your personal information is accurate.
Why It’s Important:
Identity theft is a problem that is not going away any time soon. An identity thief can steal your identity and do serious damage to your credit in less time than it takes to boil water. Checking your credit report and scores regularly ensures you notice any suspicious activity right away.
How To Do It:
The Federal Trade Commission allows consumers to obtain one free credit report annually via AnnualCreditReport.com.
Under federal law, you’re entitled to an additional free credit report if you are denied credit, insurance or employment and ask for your report within 60 days of receiving notice of your denial. The written notice you should receive should also list the name, address and phone number of the company to contact to obtain your report.
If you want to keep extra close tabs on your credit report and scores, a site you might want to consider is Quizzle. Quizzle has been mentioned in the Wall Street Journal, USA Today and CNN for being one of the best places to get a complete understanding of your credit. They offer a free Experian credit report, credit score and more.
How They Work:
While your credit report and scores never really “expire,” your credit profile could change based on the financial decisions you make on a daily basis. One late payment or new credit account could make your credit report and scores go up or down, which is why most lenders request to pull your credit when you’re applying for a loan. Your credit score has a direct impact on your ability to be approved for a loan, and each lender has its own cutoff points and underwriting guidelines.
Keeping up on your credit report and scores is more important than ever. If you want any kind of loan or if you’re thinking about taking advantage of the record low mortgage rates we’ve been enjoying over the past year, make sure you’re watching your credit closely. You’ll be taking the proper measures to protect yourself from identity theft, and you’ll be preparing yourself for any loans you may want to take out in the future.
All those “record-low” mortgage rates have you watering at the mouth to buy a home or refinance your current one? Mortgage lenders adjust their rates based on perceptions of risk, so unless you can show you’re a low-risk borrower, you are unlikely to qualify for a rate that matches those seen in all the advertisements and headlines.
Consumers who want to try for the lowest rates available need to consider these basic factors:
Credit Score: The ideal borrower has a FICO score of 740 or higher. That puts you in the best place for pricing. According to MyFICO.com, borrowers with scores of 760 to 850 could qualify for an annual percentage rate of approximately 3.95 percent on a $500,000 30-year fixed-rate mortgage, while those with scores of 620 to 639 qualify for 5.53 percent.
Points: The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount. You need to buy points in order to get the best rates at many banks. In Freddie Mac’s recent weekly survey on mortgage rates, points have averaged 0.7 percent on loans in the last year. Points might make sense depending on your financial situation and how long you expect to stay in a home. So ask for a zero point quote, too, and compare.
Down Payment: Borrowers who put down at least 25 percent are more likely to obtain “attractive pricing” at most banks. Lenders offer different breaks on rates if equity is higher, so you should ask what is available.
Loan Length: A lot depends on how long you plan to live in a home. If you’re likely to move in a few years, an adjustable-rate loan with a low interest rate fixed for, say, three to five years, and adjusted afterward, might work best. Also, rates on 15-year fixed-rate loans are lower than those on the 30-year — 0.77 percentage points, on average, last year.
Property Type: If you’re buying a duplex or a four-unit building, your rate will almost certainly be higher. Condominiums may also have a rate premium, especially if they are newer or your down payment is below 25 percent. Lenders charge more if you are not planning to live in the home. Commercial properties like apartment buildings have the highest rates, as they are considered riskier.
Borrowers may also be able to reduce their mortgage rate when they enter into a “lock-in” agreement with a lender. Lenders typically offer a lower rate for a shorter lock period.
Lenders typically agree not to change an offered interest rate for 60 days, but borrowers confident of a quick closing may be willing to accept a 45-day rate guarantee, or even a 30-day lock, in exchange for a small discount, because the transaction’s speed helps the lender reduce its risk.
Borrowers must make sure, too, that they consider the entire cost of a home, looking carefully at monthly payment calculations. About a third of homeownership costs are in addition to the mortgage — among them property taxes, insurance, maintenance and repairs.
Just as we saw over Thanksgiving, mortgage rates have dropped below the historic four point mark again, according to Freddie Mac’s weekly mortgage rate survey which cites the average rate on a 30-year fixed rate mortgage recently at 3.94 percent.
The survey notes that the 15 year fixed rate mortgage rate hit a new record low of 3.21 percent, dropping below the October 6 record set, and that the 5 year adjustable rate mortgage average is 2.86 percent, also dropping to near historic lows.
Freddie Mac’s chief economist, Frank Nothaft believes low interest rate mortgages will be available through at least the middle of 2012 while Trulia’s Chief Economist, Dr. Jed Kolko predicts that rates will increase in 2012 as employment levels improve and defaults decline.
With low rates and low prices in housing, the Realtor moniker of “it’s always a good time to buy” might actually ring true right now for the consumers who can qualify for a loan and afford a down payment.
Most mortgage volume right now is refinance loans, however, which looks to remain the case in 2012. The Mortgage Banker’s Association cites that last week’s mortgage applications consisted of nearly 80 percent refinances, and although application volume rose 4.1 percent last week, the primary interest remains in refinancing as the rates hover around 4 percent.